Trading activity in the Spot Foreign Exchange (FX) market between banks and their clients cooled by less than one percent to $71.64 million in the three-day business week ended Sep. 16, 2016, from an average turnover of $72.22 million a week before, as deduced from market data obtained by BusinessDay.
This is the lowest level yet in at least 12 weeks.
“These levels are still not very encouraging, as the FX market still has a very long way to go to attain similar levels of pre 2015,” a market participant told BusinessDay.
Turnover in the Spot FX market among banks stood at $59.73 million, with the average daily turnover climbing 23 percent to $19.91 million from an average daily turnover of $16.22 million in the previous week.
The Spot FX market turnover for the reporting week was $215 million.
The inter-bank FX market closed at $/307.79 for the week ending Sep. 23, 2016, from a close of $/308.69 the preceding week.
“This indefensible stability of the Nigerian naira is not doing much to assuage the scepticism of most corporate treasurers and portfolio investors that full transparency and credible price formation are still not being attained,” another market participant said. Adding that “the CBN, FMDQ and the Authorised Dealers have to collectively work together towards the rejuvenation of the FX Market to bring back its buoyancy, if there is to be any hope for capital inflows into the financial markets and ultimately the growth of the Nigerian economy.”
Nigeria’s FX market has lacked the single most important personality for almost two years now- dollars- after petrodollars thin out and as foreign portfolio investors fled, irked by currency controls which lasted 16 months.
In clear submission to the yearnings of portfolio investors, the CBN finally threw in the towel on the peg and has since gone to increase monetary policy rate to 14 percent from 12 percent to lure what the apex bank governor, Godwin Emefiele, termed as “lukewarm investors” who had remained at bay.
The story was no different when at September’s meeting; all ten members of the Monetary Policy Committee (MPC), chaired by Emefiele, voted to leave interest rates at 14 percent, despite a worsening economy which had now slipped into recession, as confirmed by statistical body, the National Bureau of Statistics (NBS).
“Loosening monetary policy now is not advisable, as real interest rates are negative, pressure exists on the foreign-exchange market, while inflation is trending upwards,” Emefiele said. Borrowing at lower rates “will stimulate demand for goods without taking action to boost industrial production of goods. Too much money chasing too few goods will worsen the inflationary condition.
“I am very sure that there will be more inflows and more people will have FX to do their business. As we see more inflows, rates will come down. I am very optimistic the situation will come to end very soon”, Emefiele said.
The naira fell to an all-time low of N436 to the US dollar on the parallel market on Thursday, compared with N428 to the dollar the previous day, as the dollar scarcity lingers.
The spot rate of the naira also depreciated to N313.07 to the dollar from N310.08/$ the previous day. Currency traders told BusinessDay that the liquidity challenges were far from being resolved.
The embattled currency traded at an average of N307.79, down 1.69 percent from Thursday’s average, FMDQ data shows.
“The apex bank will again be expected to reprice its quotes on each of the eleven (11) monthly OTC FX Futures contracts and introduce another 12-month contract, ensuring the rates are competitive enough to attract foreign investors (portfolio and direct) and Nigerian portfolio investors.
The CBN continues to play its role as a market intervention participant as the 3rd OTC FX Futures contract is set to mature and settle on Wednesday, Sep. 28, 2016. Trading on this contract, NGUS SEP 28 2016, ceased on Wednesday, Sep. 21, 2016,” industry players told BusinessDay.
LOLADE AKINMURELE
